Competitive Facility Location Under Cross-Nested Logit Customer Choice Model: Hardness and Exact Approaches

We study the competitive facility location problem, in which a firm aims to establish new facilities in a market already occupied by competitors. In this problem, customer behavior is a crucial factor in making optimal location decisions. We explore a general class of customer choice models, known as the cross-nested logit model, which is recognized for its flexibility and generality in predicting people’s choice behavior. To explore the problem, we first demonstrate that it is NP-hard even when there is only one customer class and the cross-nested structure has only two nests. To tackle the challenging facility location problem, we demonstrate that the objective function under a general cross-nested structure is not concave. Interestingly, we show that, by a change of variables, the objective function can be converted to a mixed-integer exponential cone convex program, enabling it to be solved to optimality via an outer approximation algorithm. Extensive experiments show the efficiency of our approach and provide analyses on the benefits of using the cross-nested model in the facility location context.

History: Accepted by Andrea Lodi, Area Editor for Design & Analysis of Algorithms–Discrete.

Funding: This work was supported by the Vingroup Innovation Foundation, Vietnam [Grant VINIF.2024.DA072].

Supplemental Material: The software that supports the findings of this study is available within the paper and its Supplemental Information (https://pubsonline.informs.org/doi/suppl/10.1287/ijoc.2025.1150) as well as from the IJOC GitHub software repository (https://github.com/INFORMSJoC/2025.1150). The complete IJOC Software and Data Repository is available at https://informsjoc.github.io/.